Disclaimer: This paper was formatted as a memo to
the Director of my agency in accordance with requirements specified in
my course on electronic commerce at the University of Maryland University
College. It is purely an academic exercise. It has no connection
to my official duties and has not been transmitted to the Director.
Additional papers on this and other information resources management (IRM)
topics are available on my personal home page at http://www.erols.com/ambur.
November 1, 1998
To: Director, U.S. Fish and Wildlife Service
From: Owen Ambur
Subject: Smart Cards - Opportunities, Threats and European Versus U.S.
In testimony before the Federal Deposit Insurance Corporation, Vartanian
(1996) referenced what are perhaps the two greatest threats facing any
organization that may wish to embark upon the use of smart cards:
Most developing systems do not yet have a critical mass of consumers
Based upon the requirements associated with our authorities and responsibilities,
the use of smart cards is not a central, much less a critical issue for
us. However, two important issues that must be addressed if this technology
is to be widely accepted by our stakeholders are:
Electronic money developers are rightfully focused on security issues,
understanding that weaknesses or defects in this aspect of their product
can be devastating.(1)
The adoption of a standard so that one and only one card may be used
for any and all applications.(2)
Strong assurance of security against loss or misappropriation of value
and/or misuse of personal information.
As far as our agency is concerned, the risks associated with smart cards
are offset to a large degree by two significant opportunities:
The Governmentwide initiative being shepherded by the General Administration
Service (GSA, 1998).
The success of GSA's efforts will determine when critical mass is reached
for the application of smart card technology in the Federal Government.
The Vice President, through the National Partnership for Reinventing Government
(NPR), can also be expected to continue to exert vocal leadership on this
issue.(3) The Office of Management and Budget
(OMB) is charged by law with providing oversight, coordination, and guidance
on technology policy issues Governmentwide and the National Institutes
of Standards and Technology (NIST) is responsible for technical guidance,
particularly with respect to privacy and security issues.(4)
However based upon recent experience, it seems unlikely that enlightened,
progressive, or aggressive leadership will be forthcoming from either OMB
The fact that the Department of the Interior (DOI) is already using
a semi-smart card to identify employees for entry into the Main Interior
Building and is also nearing issuance of a single unified credit card for
procurement, travel, and other relatively small expenses.
On the topic of leadership, Gleick (1996) observed:
At present, we have private money - cash. We have networked money -
everything else. Digital money is inherently neither private nor networked;
the technology can go either way. Ultimately, someone will make a choice
- the marketplace, or the Government, or the credit-card companies or the
banks - and the technology will support it... virtually no one in or out
of Washington thinks that the Government should step in, take charge and
issue an electronic currency. There is a case to be made: that money is
not just another product, best left to the vagaries of the market, but
an irreplaceable underpinning of society; that confidence in money requires
one currency, not a multitude, that only the Government, after public debate
among contending interests, can set standards equitably, rather than leaving
the critical choices to, say, the credit-card companies. But the Treasury
does not want the responsibility of guessing the future and maybe guessing
Regardless of who takes the leadership and how well they carry out their
responsibilities, the proper role and strategy for our agency is to be
a willing and eager team player in the implementation and use of this important
emerging technology. In that role, not only should we be preparing ourselves
and working with our partners to take the fullest advantage of smart cards
internally as well as in our interactions with our stakeholders, but we
should also actively convey to those in the leadership our interest and
willingness to follow their lead in adopting the necessary standards and
building critical mass. Of course, as always, we should look to DOI, particularly
the Chief Information Officer (CIO), for leadership on this issue. As progress
occurs and momentum builds, we should begin to explore in a brainstorming
mode such innovative and even radical notions as smart card "branding"
and value-added taxes for conservation purposes.(5)
While it is outside the scope of our direct concern, the short history
of smart cards is both interesting and instructive. In a Web-based "smart
card museum," an organization known as Analyses & Synthèses
(1998) provides a detailed history of the technology through the decades
of the 1970s and 1980s. Among the highlights are the following: In September
1981 smart card experiments were initiated in three French cities - Blois,
Caen, and Lyon - and those experiments actually got under way in 1982.
By 1986, 250,000 bank smart cards were in use in France. In March 1986,
64,000 cards were distributed to banking customers in Virginia, Maryland,
and Florida. As of October 1, 1987, the French chip bank card could be
used in pay phones and later that month a former French Finance Minister
We should be prepared to take advantage of the opening of borders in
the area of means of payment and electronic transfer. Our advance, notably
in the area of microprocessor cards, should make it possible for us to
impose French technology at the European Community level.
However, in 1988 three concerns arose that caused the French to have second
thoughts: First, revenues were lower than expected while expenses were
higher. Second, technical problems were encountered. Third, there were
indications that MasterCard and Visa would develop a new electronic anti-fraud
system that would not use the French technology, thus raising fears of
launching a system that only the French banks would use. The close of the
decade of the '80s found Thomas Cook experimenting with the use of a memory
card as an electronic traveler's check. Meanwhile the president of a French
pay TV channel who had been favorable to a memory-card decoding system
concluded that it was "much too expensive."
Speaking of the potential market for "stored value cards," Vartanian
... recent studies have estimated that 50% to 75% of all consumer transactions
- by number not value - are made with cash. As a share of consumer spending,
however, cash transactions have been on the wane; falling from 36% in 1984
to 18% in 1995... Stored value products issued by unregulated entities
may well capture a considerable segment of the high-volume, low-value payment
spectrum in the coming years. A recent study by the Congressional Budget
Office predicts that a market for stored value cards (by all issuers) the
size of the current market for travelers checks - $20 billion yearly -
is "not inconceivable."
Gleick (1996) noted that the average American signs 270 checks a year,
compared with 10 for the average German. (For additional astute observations
made by Gleick, see end note 6.)(6) With
respect to U.S. versus European acceptance of smart cards, Harris et al.
They also note that the U.S. has lagged a few years behind the Europe but
that smart cards are beginning to infiltrate many sectors of our economy,
with many projects in the pilot stage. They cite industry and government
applications in banking, health care, transportation, access security,
point of purchase sales, and military operations. Van Eg (1996) concurs
that Europe is in the lead, and Newsbyte Pacifica (1996) reports that Asia
is ahead of the U.S. in smart card acceptance as well. ETHOS (1997) cites
an even higher estimate - 90 percent for Europe versus only 2 percent in
the U.S. - and notes:
Smart Cards were patented in 1973 by Roland Moreno in France.
Europe is the industry leader in smart card development, accounting for
70 percent of the world's smart card applications.
The uses for smart cards vary greatly, from pay-TV and mobile telephone,
to the most popular bank cards.
Smart cards are a $800 billion business in Europe.
There is a growing acceptance of smart cards in Europe, but up until
now in the US it has remained a very closet technology. This may all be
set to change as Americans are beginning to realise the potential of smart
cards, and that they could provide a level of convenience not seen since
the introduction of ATMs (automatic teller machines). Although smartcards
have not yet fulfilled their multi-functional potential in Europe, their
use is becoming widespread for single functions. In Denmark, smart cards
are proving a popular alternative to credit cards for using telephones.
ETHOS cites an estimate that smart card shipments in the Americas will
grow to 6.8 million by 2001, or about 20 percent of the estimated 3.4 billion
units worldwide. ETHOS also reports that e-cash and smart cards could make
up half of the $7.3 billion in online sales by 2000. Brancheau (1996) offers
an explanation for why smart cards have found greater acceptance in Europe
than the U.S.:
Smart cards are probably the most mature form of electronic payments
right now. Although the United States has not used this technology extensively,
countries in Europe, mainly France, have been using smart cards for a number
of years. The reason Europe is ahead of the US in this technology is because
of the high cost of telecommunications makes it expensive to have online
credit card readers, the smart cards can be used off line.
Leibert (1998) avers, "Smart cards will figure strongly ... as a means
of empowerment for citizens as well as a way to promote harmonisation and
interoperability throughout the European Union." (With reference to citizen
empowerment, see also end note 5.) As far as the U.S. is concerned, Mechling
(1998) expresses suspicion that:
... we're not giving enough value to smart cards as a potentially powerful
"infrastructure" i.e., an underlying enabling capacity whose benefits accrue
primarily when operated at such a huge, even society-wide, scope and scale
that the early users and applications need socially subsidized help in
getting us all started. Smart cards might provide the secure identity,
end-user control over sensitive data, safe and transportable cash, and
the transaction efficiency needed to help electronic commerce and other
broad aspects of the Information Age flourish. The core problem is that
the huge scale at which we need to think and act cuts across too many turf
lines for which government officials are daily held accountable. As a result,
we are probably not investing enough in smart cards, or in the right kinds
of early multi-institutional and public-private projects.
One way or the other, military, banking, educational, health care,
social services, and computer services institutions will soon be looking
at smart cards. The government should be encouraging aggressive multi-institutional
experimentation and looking for ways to serve as "anchor tenant" in helping
different industries become efficient. While we don't want premature standardization,
we do want to make electronic commerce efficient and available to all as
quickly as possible.
GSA's smart card initiative together with DOI's employee ID and charge
card consolidation projects establish the foundation for additional applications
on an incremental basis, consistent with the continuous improvement in
the technology that may be anticipated.(7)
We should strive to be among the "leading followers" in the implementation
and use of this exciting technology for innovative applications directly
related to our mission.
Analyses & Synthèses. (1998, October 22.) "The Birth of Smart
Cards:1981 & 1982." The Smart Card Cybershow. Available at: http://www.cardshow.com/index.html
Boyd, J. (1998, January 21). "Smart cards not smart enough." The
Japan Times. Available at: http://www.japantimes.co.jp/features/ccorner/cc98/cc980121.html
Brancheau, J. (1996, December 31). "Smart Cards." Available at: http://www.colorado.edu/infs/jcb/sinewave/service/epayments/smartcards.html
CompUSA. (1998, October 26). "Open for Government Business." Advertising
supplement in Government Computer News.
ETHOS. (1997, June 19). "The varying adoption of smart cards." Available
General Services Administration. (1998) SmartGov: The Smart Government
Community. Available at: http://policyworks.gov/org/main/me/smartgov/
Gleick, J. (1996, June 16). "Dead as a Dollar." The New York Times.
Harris, J., Kennedy, J., Lindsay, S., and Widowski, B. (1998). SMART
CARDS: The Future is in the Cards. Available at: http://spider.cwru.edu/projects/mids409/fall97/smart/smart1.html
Leibert, A., Director. (1998, October 30). "What's Hot." Card Europe,
The Association For Smart Card And Related Industries. Available at: http://www.cardeurope.demon.co.uk/hot.htm
Mechling, J. (1998) "Smart Cards as Infrastructure: Is Government Missing
the Big Bets?" Available at: http://policyworks.gov/org/main/mg/intergov/letter/harvard3.htm
Newsbytes Pacifica. (1996, February 27). "Asian Smart Card Market Booming."
Available at: http://www.nb-pacifica.com/headline/asiansmartcardmarketb_515.shtml
Van Eng, R. (1996, October 17). "Europe Leads The World In Smart Card
Spain, Germany and Netherlands see widespread use in health care, social
security and electronic cash." Available at: http://www.cosmo21.com/wind/news/w1096_08.htm
Vartanian, T.P. (1996, September 12). Statement to the Federal Deposit
Insurance Corporation Concerning Stored Value Cards and Electronic Payment
Systems. Available at: http://www.ffhsj.com/bancmail/tpvtest.htm.
1. In his testimony to the FDIC, Vartanian (1996)
proffered the following 14 conclusions:
(i) Most developing systems do not yet have a critical mass of consumers
using their products, so the public policy risks at this time are limited.
2. Boyd (1998) notes that the proliferation of different
cards may be their undoing, since no one wants to be forced to carry around
still more plastic.
(ii) Product innovators have differing views about when to bring their
products to market, whether experimentally or otherwise.
(iii) Electronic money developers are rightfully focused on security
issues, understanding that weaknesses or defects in this aspect of their
product can be devastating.
(iv) Competition among these products will be based, in part, on the
impenetrability of the security system and the confidentiality of information
provided to the system.
(v) Security failures in any electronic money system may affect consumers'
views of all developing systems.
(vi) Brand recognition will be critical in cyberspace where the consumer
will have limited means to identify the size, reputation and performance
of electronic money issuers.
(vii) Retailers rather than consumers will drive the types of electronic
money products that will gain consumer acceptance, as retailers develop
product formats that consumers will want/need to take advantage of.
(viii) The Internet will create an enormous new commercial market and
provide the basis for an alternative payments system.
(ix) Many electronic money systems do not need to be federally insured
to enjoy maximum efficiency and deployment.
(x) The delicate balance between privacy and governmental interests
makes the anonymous, unaccountable transfer of electronic money a very
(xi) Customers may not recognize or consider the fundamental legal
distinctions between different electronic money and stored value products
and their ability to be insured by the FDIC.
(xii) Interoperability will be critical to the efficiencies and convenience
that retailers and consumers will demand; accordingly, the market is likely
to limit the number of electronic money and stored value products that
exist side by side.
(xiii) Most developers of electronic currency and stored value card
systems are prepared to provide consumer protections as a matter of agreement
(written or electronic) with the customer.
(xiv) Many electronic and stored value products have been constructed
to be adaptable to the modifications that government intervention and regulation
3. An indication of the Vice President's involvement
with smart cards can be seen in the White House's Framework for Global
Electronic Commerce, which is available at: http://www.whitehouse.gov/WH/New/Commerce/read.html.
Documentation on NPR's involvement in this technology can be retrieved
by conducting a "smart cards" search at http://www.npr.gov/nprsrch.html.
4. Documentation on NIST's involvement with smart
cards can be retrieved by conducting a search at http://search.nist.gov/external/external_search.html.
5. Innovative opportunities that may warrant consideration
include such things as:
"Branding" of smart cards for endangered species, waterfowl, wetlands,
and habitat conservation purposes.
The automated collection of value-added taxes (VAT) on products in
accord with their associated environmental impacts.
Such innovations might serve as means of generating additional revenue
and/or offsetting reductions in general tax revenues in support of our
natural resources conservation programs. We already have authority to license
the Duck Stamp image to vendors of commercial products. We are also authorized
to collect entrance fees at various of our National Wildlife Refuges and
the Golden Eagle pass provides general admission to Federal recreation
and conservation areas nationwide, with revenues split among the participating
agencies. Offering the pass as a component of a smart card may be an effective
way to greatly expand its customer base. Moreover, commercial vendors may
be willing to pay a significant share of their revenue for the right to
license and brand a natural resources conservation smart card.
Open dissent and vociferous debate are the hallmark and strength of
our democracy. However, even the staunchest fiscal conservatives on the
one hand and liberals on the other may concur in the wisdom of efficiently
associating environmental costs with the revenue streams appurtenant thereto,
as well as offering citizens the opportunity to voluntarily contribute
to the cause of natural resources conservation. As Congress and the nation
deliberate changes in our tax policies, the potential economic efficiencies
of branded smart cards and environmental impact taxes are worth of consideration
in the debate.
It has been said that in the market, one dollar equals one vote. To
that degree, it would be interesting to see what might happen if Members
of Congress were willing to disintermediate themselves and empower the
American public to vote directly with their dollars on important natural
resources conservation issues. Electronic commerce in general, and smart
cards in particular, hold vast potential to enhance the economic efficiency
with which such a voting process might be conducted. At the very least,
it seems worthy of a few carefully selected pilots and it would be well
if the interests of our agency could be represented among them.
6. Other observations that made by Gleick (1996)
7. A review of DOI's Web site (http://www.doi.gov)
didn't turn up any reference to smart cards, the DOI ID or the consolidation
of procurement and travel charge cards. However, additional details on
GSA's initiative are provided by CompUSA (1998), which reports the following:
The awkwardness of cash has driven the unanticipated rise of credit cards
over the past two decades...
The vast bulk of mail-order and phone-order commerce depends on credit
cards - or, more precisely, credit-card numbers, for merchants no longer
need see or touch the actual card.
You can trust a mail-order house with your credit-card number as you would
never trust it with cash, because you know that the credit-card company
will hear your complaints, examine parcel-service records and back you
if the merchandise fails to arrive.
The Evergreen Card is digital cash with one flaw: the counter in its built-in
chip gets stuck and fails to deduct the charge. In other words, it is the
legendary magic purse, always ready with another coin.
Eliminating cash would free the world of the single biggest form of tax
fraud. It could also wipe out a host of other crimes: bribery, kidnapping,
extortion and even robbery.
Yet this could also be a world where vast computer databases keep track
of every magazine you buy, every bus you ride, every hot dog you eat, every
beer you drink, every video you rent, every sawbuck you borrow.
Smart cards, or their on-line equivalents, could function as blindly as
raw cash... That is a frightening prospect to law-enforcement authorities.
So far, the large institutions entering the electronic-money arena are
leaning toward less-anonymous, less-private approaches ... betting that
most of us will be willing to sacrifice more pieces of privacy for, say,
The heightened fear of counterfeiting in the digital-cash world may drive
banks, rightly or wrongly, to make sure that all money is networked money.
... a few years ago, federal officials measured per transaction cost
savings of charge card use at about $54 on average... but we can do better,
GSA decided... [by replacing] the IMPAC card with an expanded, task order-based
system called GSA SmartPay... As of September, about 99 percent of the
total federal charge card dollars had been awarded to GSA SmartPay contractors...
The new GSA SmartPay charge card takes effect November 30... [Among other
things, it] accommodates new Electronic Commerce, EDI and EFT requirements.
Your agency has the discretion to extend the reconciliation application
to you. When they do, you will no longer have to piece together your purchase
activity with manual processes or invoices. Among the many requirements
GSA SmartPay contractors meet is one to provide automatic account reconciliation.
you can get answers to your questions concerning ... what value-added features,
products, and services are available to your agency. (p. 2)
Core requirements met under GSA SmartPay [include] ... EC support and
documentation... Audit assurance... Record retention. (p. 3)
GSA expects that once the transition to GSA SmartPay is fully made,
agencies will begin further negotiations for the many value-added services
contractors are ready to offer. These include: Smart cards ... Electronic
cash options, Debit card options, Phone card access, Electronic bill payment,
Photo ID ... (p. 3)
Per transaction cost savings ... are often measured at $90 and higher
... (p. 3)